Social Impact

Social impact investing provides institutional investors in real estate with a compelling opportunity to contribute solutions to major societal challenges addressed by the UN Social Development Goals and at the same time, access investment opportunities that deliver long, certain income streams offering beneficial risk-adjusted returns.

Within real estate, approaches to delivering social impact can be diverse. However, they share an overriding strategic approach that considers the potential impact of investment activity on local communities and wider society. Integrating such considerations throughout the investment approach ensures that each asset has an intentional, net positive impact. Often it is then the role for investor and/or investment managers to simply make room for, facilitate and monitor the social impact activity, while being rewarded with substantial risk management benefits.

The report explores opportunities and challenges for the expansion of social impact investing from the perspective of strategic approach, risk management and capital sources, making recommendations to enable the wider real estate industry to embrace the social impact opportunity to the benefit of all stakeholders in their organizations and across wider society.

The research finds that it is possible to generate social impact by taking a more holistic approach to strategic analysis and expanding the range of stakeholders considered by it to include the wider community affected by an asset. Often, this can be achieved with relatively small adjustments to existing strategies, that can create a disproportionately positive impact, often at minimal cost, and at the same time offers specific risk management benefits that support returns.

The report also finds that a strong social value corporate culture is a pre-requisite to social impact investing as it builds upon existing social value practices at an organizational, portfolio and asset level. The report is global in scope and investigates the spectrum of real estate companies, products and practices incorporating a social value and/or impact approach and determines that every asset has the potential to deliver social impact.

You can download the report to view the full research findings and recommendations.

Learn more about global applications and examples from the webinars: 

• ULI Global Webinar: Impact Investing Research Launch in partnership with DLA Piper - Session 1 EMEA and APAC
• ULI Global Webinar: Impact Investing Research Launch in partnership with DLA Piper - Session 2 EMEA and Americas

Contents

• Key Findings

1. Social Impact in the Context of the Wider Social Value Spectrum
2. Structure and Strategic Approach to Social Impact
3. Capital Sources: Appetite, Opportunity and Challenges
4. Approach to Social Impact Investing

• Recommendations
• Report Process

Key Findings

Social Impact in the Context of the Wider Social Value Spectrum

• There is a spectrum of approaches to social value creation that includes responsible, sustainable and impact investing styles
• Strategies may be applied at an organizational, portfolio or asset level
• A strong corporate social value culture is a prerequisite to impact investing
• All social impact creates social value, but not all social value delivers social impact
• Social impact’s distinguishable characteristics are intentionality of social impact, setting of social as well as financial return objectives, with returns measured, reported and validated, with the impact generated being additional and benefitting underserved people and places

Structure and Strategic Approach to Social Impact

• Social impact strategies can be applied to all sectors, with all asset plans having the capacity to deliver targeted outcomes for the wider community
• Sectors directly focused on providing the physical assets required to serve people’s basic needs as well as those providing space as a place, have significant opportunities to deliver social impact
• By applying a more holistic approach, social impact can often be achieved by relatively small adjustments to existing strategies that can have a disproportionately positive impact
• It is the audience that if often new, the overarching approach mirrors best practice asset management
• Investing with purpose enables investors to enhance risk-adjusted returns as social impact strategies provide a range of important risk management benefits
• As for other progressive approaches to real estate investment management, valuation practice is lagging and the gap between worth and value models is widening, which given regulatory constraints on some investors is impeding growth in the sector

Capital Sources: Appetite, Opportunity and Challenges

• Investor and investment manager interest in social impact real estate is accelerating
• Millennial High Net-worth Individuals and large European institutional investors have the strongest appetite amongst investors, while among investment managers, those with proprietary capital are most active
• There is also regional variation in investment appetite for social impact real estate, with interest in social impact strategies strongest in Europe, followed by the US and lowest in Asia
• There are several issues embedded in the structure of industry models for capital allocation that are acting as an impediment to growth for smaller and medium scale investors and some foundations
• The profile of impact strategies often offers blended returns across development, stabilization, and income phases, providing long-term certain income streams that require a longer-term investment horizon duration. This can result in these strategies falling between the stools of low-risk income and liquidity v high growth illiquid investments
• Similarly, silo-based approaches to capital allocation, particularly those that include real estate impact in an asset class wide ESG silo, rather than in a real asset allocation, can result in these often cross cutting strategies being overlooked
• The public sector is an important, often hidden, enabler of social impact investing. Policies have an important influence on the structure of social impact investment, which varies across different jurisdictions

Approach to Social Impact Investing

• Although investment approaches and processes vary and are often bespoke to organizations and/ or specific funds, there is a commonality to social impact real estate frameworks and processes
• Measurement of social outputs and social outcomes is crucial, as, in contrast to environmental impact strategies, social impact strategies do not lend themselves to having a common metric that can be applied across all sectors
• Monetization is useful where it is appropriate and there is a direct line of sight between impact activity and financial goals, however it should not be a controlling factor
• Third party validation is an important part of the social impact process

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Recommendations

This research makes several recommendations to enable the wider real estate industry to embrace the social impact opportunity. Achieving them requires the industry to work together across multiple disciplines to:

• Establish industry standards for social impact investing that align with the wider impact industry and through collaboration, draw upon, support and contribute to the social impact real estate validation and certification standards of existing organizations active across the industry
• Challenge valuation processes and methods through the development of a clear evidence base including data compilations and case studies, enabling analysis between different market segments and across the range of real estate strategies including traditional and impact approaches
• Create educational resources for a range of stakeholders more unfamiliar with impact investing and/or potential investors who may lack real estate resource and expertise

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Report Process

This study, supported by DLA Piper, was undertaken by Dr. Brenna O’Roarty, Executive Director and Founder of RHL Strategic Solutions, in partnership with ULI staff, consultants and its contributing members. The methodology comprised five inter-related stages:

• A detailed literature review was undertaken to understand real estate social impact in the context of both the wider real estate universe and the wider impact industry, including available frameworks and measurement tools.
• 24 structured interviews with investors, investment managers, investment management consultants and impact management consultants with deep knowledge of impact investing in real estate. These interviews, undertaken by video conference between 10 December 2021 and 10 March 2022, provided detailed understanding of approaches to impact investing, investment structures employed, risk return profiles and variation in appetite across capital sources.
• The interviews also assisted in sourcing original case studies. Seven case studies were selected to provide detailed examples of how to design, integrate and manage social value creation into real estate investment strategies across developed economies in Asia, Europe, US and Rest of the World, across different types of impact strategies.
• A survey was fielded during March and April 2022 to elicit the views of the wider real estate investment industry in respect of impact investing. 198 responses were received providing a useful context for the structured interview findings.
• Key issues distilled from the research were presented at three roundtables. The roundtables were designed to mix participants from different regions to facilitate discussion around potentially diverse perspectives on impact investing pertaining to each region.

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